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Federal Court Upholds Fraudulent Billing Claims Against Verizon

New York, NY (May 20, 2010) - A magistrate of the U.S. District Court for the Eastern District of New York has upheld 27 of 28 claims asserted in a suit against Verizon by Maimonides Medical Center (MMC), denying a Verizon motion to dismiss claims alleging fraud, fraudulent concealment, breach of contract, and unjust enrichment arising from Verizon’s billing practices.

In its 118 page Amended Complaint, MMC alleges that Verizon wrongfully induced it to pay over $3.75 million in “unearned and improper” charges throughout the course of a series of telecommunications service agreements. The Amended Complaint alleges that Verizon fraudulently concealed its inaccurate billing practices through, among other things, “its complex and Byzantine billing and Tariff use”, and that Verizon’s actions are systemic and affect multiple customers. The Amended Complaint also alleges that Verizon defrauded MMC into entering into a financing agreement and continuing to pay excessive charges.

Specifically, MMC alleges that Verizon billed MMC for “inoperative and non-existent services,” “repeatedly double- or triple-billed it for the same services during the same monthly period,” and charged MMC for “inoperative and non-existent services” over the span of the last decade. In response, Verizon argued that all of MMC’s state law claims were preempted by federal law and that its remaining claims, which Verizon argued are governed by the FCA, were barred in whole or in part by the FCA’s two-year statute of limitations.

In a 42 page report and recommendation, Judge Robert M. Levy, Magistrate for the Eastern District of New York, rejected Verizon’s argument that the “filed rate doctrine,” which provides that federal law preempts state law claims related to telecommunications services, preempts MMC’s state law claims. Noting that the Telecommunications Act of 1996 (which went into effect in 2001) “fundamentally altered” the telecommunications law landscape, the Court held that “MMC’s state-law claims do not challenge or seek to invalidate Verizon’s rates or terms of service in a way that presents a conflict between state and federal law or could lead to inequality among customers.”

In so finding, Judge Levy noted that “neither the antidiscrimination nor non-justiciability strand of the filed-rate doctrine [were] implicated by MMC’s claims” and rejected Verizon’s attempt to use its tariffs to “serve as a shield against all actions based in state law.” The Court therefore found that since MMC’s state law claims were not preempted, those claims were subject to the six-year New York statute of limitations, rather than the two-year FCA statute of limitations.

In addressing the statute of limitations to MMC’s federal law claims, the Court found that an issue of fact exists as to when MMC’s federal law claims accrued. Applying the “discovery of injury” rule, the Court rejected Verizon’s argument that each invoice constituted a separate and immediate injury accrual date. Noting the FCC’s “truth in billing” regulations, the Court held that a determination of whether MMC had inquiry notice is a factual issue that must include consideration of “all the relevant circumstances” including the “degree of [plaintiff’s] sophistication, the type of services ordered and the plaintiff[’s] reasonable expectations, and the presentation of billing itself.”

With respect to MMC’s fraud and fraudulent concealment claims, the Court rejected Verizon’s argument that it is legally impossible to fraudulently conceal material information in its bills. It also rejected Verizon’s proposed burden of proof flowing from that argument, finding that “taken to its logical extension, this argument would place the burden on every non-residential customer to assume that every Verizon bill is inaccurate, to disregard the representations of Verizon employees, and to conduct a costly independent investigation into the accuracy of every bill.”

“We are pleased that the Court determined that Verizon cannot hide behind tariffs in an effort to avoid redress from its wrongdoings,” said Michael J. Lane, a shareholder at Anderson Kill & Olick, P.C., who represented Maimonides Medical Center along with Anderson Kill colleagues James P. Cullen and Lawrence J. Bartelemucci.

For more information, please contact:

Carol A. Ueckerman
Communications/Marketing Manager
(212) 278-1339

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